Although United Overseas Bank’s (UOB) decision to accelerate the build-up of its performing loan coverage dampened overall sector earnings, normalising credit costs could result in a q-o-q improvement in the sector’s 4QFY2025 patmi.
RHB has a “buy” call on DBS with a $59 target price, and “neutral” calls on both OCBC and UOB with target prices of $18.70 and $36.10 respectively.
NIM still under pressure
DBS and UOB have introduced their 2026 guidance, suggesting a modest backdrop ahead amid low- to mid-single-digit loan growth coupled with some NIM pressure due to further US Federal Funds Rate cuts expected, according to RHB.
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That said, both banks were more optimistic on non-II, with wealth management to continue driving fees and help support overall operating income, they add. With respect to asset quality, the banks remain watchful but have not observed any systemic signs of asset quality issues.
Prospects for further capital return dividends were mixed, says RHB; DBS reiterated its ordinary dividend per share (DPS) step-up and capital return DPS commitments, while UOB ruled out any further special DPS.
OCBC investors, meanwhile, will need to wait for the 4QFY2025 briefing in the new year for updates.
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Both DBS and UOB appeared optimistic that non-II would continue to do well next year with the wealth management space as a key fee driver.
DBS expects its commercial book non-II to grow in the high-single-digit range, compared to 2025 forecasts of mid- to high-single-digits. Meanwhile, UOB has guided for high-single to double-digit fee growth in 2026, compared to their 2025 forecast of high-single-digit commercial book non-II growth.
Earnings revisions
During the reporting quarter, RHB revised up its FY2025-FY2027 patmi for DBS by 5%, 1% and 1%. The larger revision in FY2025 patmi is due to the better-than-expected non-II achievement year to date.
For FY2026F-FY2027, RHB has raised its fee income outlook on DBS, partly offset by slightly wider NIM compression and higher credit cost, to be in line with guidance.
Conversely, RHB has cut UOB’s FY2025-FY2027 patmi by 14%, 4% and 4%. The sharper decline in FY2025 earnings is after factoring in the pre-emptive and year-to-date loan provisions booked in, while for FY2026F-FY2027, the revisions are on account of lower NIM, says RHB.
RHB now projects UOB’s FY2026 NIM to decline by 11 basis points (bps), compared to a 4 bps y-o-y decline previously.
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For OCBC, RHB has raised its FY2025-FY2027 patmi by 3%, 1% and 1% with the larger revision in FY2025 due to the robust non-II achievement year to date.
For FY2026F-FY2027, although OCBC has not provided its guidance, RHB has made revisions around OCBC’s fees (revised up) and NIM (wider compression assumed) to be broadly consistent with the trends for peers.
As at 4.08pm, shares in DBS are trading 17 cents higher, or 0.32% up, at $53.87; while shares in OCBC are trading 9 cents higher, or 0.5% up, at $18.25; and shares in UOB are trading 7 cents higher, or 0.21% up, at $33.91.
